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Time is up for ‘tax advantage investments’

THE biggest industry in this town at the moment seems to be built around bashing the Australian Taxation Office and their staff. Our daily newspapers have run stories centred on the disallowance by the Taxation Office of claims made by taxpayers for deductions of amounts invested in what are euphemistically called “Tax advantaged Investments”.

Three years ago I wrote in Business News: “I for one, would caution all potential investors to review these investments before making any decision to part with their hard earned money. My experience certainly suggests that these projects have a very short life span and given the choice of investing in one of these projects or paying the tax, I would opt to pay the tax.”

Now the ATO has issued a number of assessments in respect of a large number of projects disallowing the claims that have been made by participants.

This has prompted the creation of all manner of fighting funds and associations to combat the ogre of the ATO.

The question that has eluded me through all of this publicity is whether the investor was aware of the nature of the investment at the time of making it and whether, because of the potentially large tax deduction, the ATO would be prepared to sit back and allow the claims made.

If the investor was not aware of the nature of the investment, then was the adviser who recommended the investment aware of the nature of the project.

Were the tax deductions ever in doubt?

It would have been patently obvious to anyone that claims of the nature being made by the promoters of these arrangements would attract the attention of the ATO.

Business News spoke with Ms Cheryl-Lea Field, Assistant Commissioner, Small Business Section and spokesman on these matters at the ATO here in Perth. Ms Field was happy to place the process of the denial of deductions in the proper context.

“The ATO utilises a process of self-assessment. Under that system, returns as lodged by the taxpayer are accepted on face value,” Ms Field said.

“The ATO then has a community obligation to undertake due diligence checks of the assessments that have issued. If the assessments are seen to be wrong then the ATO will issue amended assessments to rectify the error.

“One such error would be the allowance of deductions when they are considered not to be so.”

Under self-assessment, the ATO is allowed to go back four years on normal assessments and six years if they were to apply Part IVA of the Act and consider something to be tax avoidance in nature.

The point that Ms Field was very careful to make was that the ATO has not changed the law to disallow these claims. The normal self-assessment process as outlined above revealed that there were deductions being claimed that were not necessarily allowable. The ATO then fulfilled its community obligations and investigated the cases in more detail.

Having performed a thorough investigation they came to the view that the claims were not allowable. Ms Field emphasised that the decision that was taken to amend the assessments was not taken lightly. The ATO is very confident of its cases and sees that the Courts will uphold their decision.

Of the cases that have been disallowed in the realm of Tax Advantaged Investments, none have had product rulings issued in respect of the projects. The existence of a product ruling does not guarantee the allowance of deductions, anyway.

If there has been a material departure from the information that was provided to the ATO in making their ruling, then the ATO is perfectly at liberty to disallow a claim that had previously been ruled to be allowable.

The supposedly heartless ATO has gone to great lengths to ensure that it has provided support structures for those investors affected by these disallowances. They have provided a telephone assistance service for those taxpayers finding themselves in the position of owing money to the ATO. In addition, they are conducting seminars and field visits to the regional centres of WA such as Kalgoorlie, Bunbury etc to provide face-to-face contact and explanation to investors.

Ms Field did indicate that there had been a considerable amount of misinformation in respect of this whole area. The ATO had been the butt of considerable criticism over the last few months. However, the ATO is confident of its case and will pursue the matters through the court system. Already the Budplan cases are being listed for hearing in June of this year. It is hoped that the other cases will have similar trial dates so as to try and finalise what has been a long running saga.

For those promoters out there who thought that this was purely the problem of the advisers and their clients, be warned, the ATO is looking at the next line of defence. Should there be any suggestion of fraud they will view this with the requisite attention and refer the matters to the appropriate authority for investigation.

In an effort to provide the opportunity for the aggrieved investors to put their side of the story, this columnist made four attempts to contact the lawyer from the relevant firm to discuss their position. Not having had the courtesy of a return phone call leads this columnist to question their ability to represent such a large number of investors adequately.

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